Short Run (📈): The period in which at least one input (usually capital) is fixed. Firms cannot adjust all production factors quickly.
Long Run (🏗️): All inputs are variable. Firms can enter or exit markets, build new factories, and adjust technology.
Very Long Run (🚀): Structural changes, major technological breakthroughs, and demographic shifts occur. The economy can adapt to new institutions and global trends.
Think of a sprint in a race. You can’t change your shoes mid‑run, just like firms can’t instantly build a new factory. Prices are sticky because contracts, wages, and menu costs keep them from adjusting immediately.
Key features:
Example: A sudden tax hike reduces disposable income. In the short run, consumption falls, but firms may keep output steady by cutting hours.
Imagine a marathon. You can change your shoes, training routine, and even your route. Firms can invest in new plants, hire more workers, and adopt new technologies.
Key features:
Example: A company builds a new factory over a year. Production capacity increases, and the economy can grow sustainably.
Think of a century‑long project like building a space colony. Structural shifts, new institutions, and radical tech changes dominate.
Key features:
Example: The digital revolution changes the labour market, creating new industries and phasing out old ones over decades.
| Feature | Short Run | Long Run | Very Long Run |
|---|---|---|---|
| Input flexibility | Fixed capital | All inputs variable | Structural change, new industries |
| Price flexibility | Sticky | Flexible | Long‑term price trends, inflationary pressures |
| Policy impact | Immediate but temporary | Full adjustment | Structural reforms, technology adoption |
| Time horizon | Days to months | Months to years | Years to decades |
Exam Tip: When asked to explain a time period, start with the phrase “In the short run, …” and remember the key point: fixed inputs and price stickiness. Use the analogy of a sprint to keep your answer memorable.
Exam Tip: For the long run, highlight that all inputs are variable and that firms can adjust capacity. Mention the marathon analogy and the phrase “full adjustment to policy.”
Exam Tip: In the very long run, focus on structural change and technology. Use the space colony analogy and note that policy effects can be long‑term and transformative.
Exam Tip: Remember the formula for GDP: \$Y = C + I + G + NX\$. Use it to illustrate how changes in investment or government spending affect the economy over different time periods.